Why is it in the news?
1. The US President, annoyed with the Indian Government, labelled both Indian and Russian economies as dead. The Government of India did not open the Indian farming sector and dairies for the US, fearing that the Indian farming community would not withstand the competition from the US agricultural goods and dairy products because 86% of Indian farmers are marginal farmers having less than two hectares of agricultural lands. The US farmers are holding huge chunks of land and getting huge subsidies from the US Government.
Definition of a dead economy
1. An economy is said to be dead when there is no economic growth or when the economy of a country has started shrinking. For example, in 1995, the GDP of Japan at current prices was more than $5.5 trillion which came down to $4.187 trillion in 2025. So its economy slipped to fifth rank behind India. In contrast, in 1995 the GDP of India at current prices was $360 billion which rose to $4.187 trillion. Thus, India witnessed an increase of 11.6 times since 1995. If we compare other economies like China, Russia, the US, the UK, Germany, Argentina, Pakistan, we find that the growth rate of India since 1995 has been tremendous, only second to China. Again while in 1995, GDP of India was only 4.7% of the GDP of the US, it rose to 13.7% in 2025. The chart below suggests that the GDP growth of India, China and Russia witnessed a leap when compared with the GDP growth of the UK, Germany, and Japan. In 1995, the GDP of Japan was 72.6% of the GDP of the US which shrank to 13.7% of the US GDP in 2025. On the other hand, the GDP of China was only 9.7% of the US GDP, rose to 63% of the US GDP in 2025. The chart below clearly suggests that the Indian Economy is increasing by leaps and bounds. It is estimated that by 2030, India would become the third largest economy of the world in nominal GDP terms, surpassing Germany. In absolute terms,according to the IMF, Indian GDP would become $7 trillion in nominal terms and $22.2 trillion in PPP terms.
2. India has become the fastest growing major economy of the world. Real GDP growth for the fiscal year 2024-25 stood at 6.5% and projections for 2025-26 from the IMF is 6.4%. This growth rate is significantly higher than that of the advanced economies and many of the emerging markets. In 2024-25, the growth rate of China was 5% and in 2025, the projected growth rate is 4%. Similarly, real growth rate of the US in 2024 was 2.8% and projected growth rate in 2025 is 1.7%, Russia 4.1% in 2024 and projected growth rate of 1.4% in 2025, the growth rate of UK was 1.2% and projected growth rate of 1% in 2025, in Canada the growth rate was 1.6% in 2024 and projected growth of around 1.8% of 2025. In Australia the growth rate was 1.75% in 2024 and projected growth rate 2.25% for 2025-26. The growth rate of Brazil was 3.4% in 2024 and the projected growth rate in 2025 as per the IMF estimates is 2%.
Macro Economic Stability
1. The fiscal deficit was brought down to 4.8% of GDP in 2024-25, which is to be reduced to 4.4% in 2025-26. Similarly, the retail inflation came down to 2.1%, the lowest since 2019. India’s exports have been increasing every year. It reached $850 billion in 2024-25. The foreign exchange reserves have reached around $700 billion, thereby providing a strong buffer against external shocks. Foreign direct investment inflows continue to be strong with cumulative inflows surpassing $ 1 trillion.
2. One of the biggest achievements of the Indian economy is that in 1951, 70% people were below poverty line according to the estimates made by an economist Suresh Tendulkar. In 2022-23, only 5-6% people are now below poverty line. Instead of taking into calorie based matrices (2400 calories per day for rural and 2100 calories per day for urban), the Tendulkar committee took into account the monthly per capita consumption expenditure that includes food, education, health, clothing, electricity etc. The graph below would clearly elucidate the above point.
Deep Concerns
1. While India’s overall GDP has grown, its growth rate has lost momentum since 2011-12 and failed to replicate the spurt of fast growth at 8-9%. Since 2014 India’s growth rate has hovered around 6%. Thus we see that India has not achieved the pace of growth that China achieved from 1980 to 2010 at the average 10% growth rate.
2. India’s share is just 1.8% of total global exports of merchandise goods and just 4.5% of total global exports of services. On the other hand, the share of Chinese exports of merchandise goods in world trade is around 14.6%.
3. India’s farm economy is plagued with stress. 86 % of its farmers are practising subsistence agriculture and so they cannot compete with farmers of the US or developed countries who hold huge tracts of lands and get huge quantities of subsidies from their respective governments and that’s why the Indian Government wants to protect the farming and dairy sectors from the US and developed countries.
4. It has been observed that since 2019-20 manufacturing sector has not registered a better growth rate as was expected. The CAGR was 4.04%, which was even lower than agriculture and allied activities at the CAGR of 4.72%. That’s why, the bulk of India’s population are still engaged in the rural and farming sectors because of the failure of manufacturing to absorb additional workforce employed in agricultural sectors.
5. Despite the fast GDP growth in India, the growth has been skewed in favour of already developed states of Maharashtra, Gujarat, Karnataka and Tamil Nadu. This led to the regional disparities in India so much so that the average per capita income of Bihar is ten times less than that of Goa. On the eve of independence, the per capita income of Bihar was just half that of Bombay presidency which consisted of the present day Maharashtra and Gujarat. After the lapse of 78 years, this gap further widened so much that the average per capita of Bihar is 5 times lower than that of Maharashtra.
6. There are still 22% of the people living below the poverty line according to a World Bank estimate. Inequality has further widened so much so that 1% people from the top own 22% of the national income and 40% of the national wealth. The 20% people from the below have no worth durable assets. As regards human development, the condition of health and education for common people is still a matter of concern.
7. Despite the impressive GDP growth the economy is not generating enough jobs to absorb the young population so much so that the youth unemployment is at 15%. More than 80% of the workforce are employed in low productivity informal sectors. This jobless growth is a major threat to social and economic stability.
8. Uneven economic recovery - The benefits of growth have not percolated to the grassroot level. While the urban consumption is increasing by leaps and bounds, the rural consumption is lagging, thereby creating widening rural-urban divide.
9. India requires $1.5 trillion for the development of infrastructure in coming years, the mobilisation of huge long term capital remains a great challenge for India.
10. The US tariff of 50% on Indian exports in 2025 threatens IT services, textiles and manufacturing exports. The slow global growth below 3% further reduces exports of India.
11. The ongoing US-China rivalry, Russian- Ukraine war and instability in West Asia may further cause disruption in global supply chains leading to the risk of energy security of India.
12. In addition, rising US interest rates can trigger portfolio outflows thereby putting pressure on the rupee and foreign reserves.
Way Forward
1. India can take the following measures to spur its growth momentum. These are :
A) export diversification so that heavy reliance on the US and China can be minimised.
B) More emphasis should be given on renewable sources of energy in order to reduce dependence on fossil fuels.
C)MSMEs sectors should be further boosted so that more jobs are created. In addition, the manufacturing sector should get more priority and Make in India initiative and PLSI should get further filip so that India should produce more goods to be exported to the international market. Instead of depending upon domestic consumption, the export oriented growth would spur the manufacturing sector and its productivity.
2. The recent declaration of reducing GST slabs at 5% and 18% would further lower prices of different commodities and these would spur consumer demand specially FMCG, durables and middle class consumption items. It would further ensure compliance and formalisation of the economy. A simplified tax regime will encourage domestic and foreign investment.
Conclusion
1. India is not a dead economy, instead it is the fastest moving economy in the world. In order to reap the maximum demographic dividend and to exploit the immense potential of the Indian economy, India must focus upon inclusive, employment intensive and sustainable growth. Instead of depending upon domestic consumption, India should strive for export oriented growth like China. This would further raise the production and productivity of the different sectors of the economy. However, the pertinent point is that the growth must percolate down to the grassroot levels.
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